California Lottery is booming, thanks to higher payouts

After years of decline, the California Lottery is booming. The jackpots are bigger, and that's drawing more players and excitement.

Just a few weeks ago, a Mega Millions ticket sold in San Jose matched all six numbers. The state-record prize of $324 million — worth about $174 million in a single payment — was claimed by a Northern California man Friday.

The turnaround is due to changes made to the lottery in 2010, when revenues were on the decline. The changes brought bigger prizes, but they also altered the formula for how much revenue schools receive.

And the long-term effect of those changes is far from clear.

Before the switch, the lottery's contribution to public education was required to be at a minimum 34% of its revenue. The percentage of money going to prizes was capped at 50%.

But some officials believed the prizes were too small to draw more players. The state Legislature's changes gave the lottery flexibility in determining its education contribution. That allowed the lottery to pump more of its revenues back into the prize pool, which officials say fueled the resurgence that continues today.

With lottery revenue booming, the money sent to schools has increased. In the 2011-12 fiscal year, the lottery wrote a check of $1.3 billion to California public education, the 12th straight year that the lottery contributed more than $1 billion.

But the gap between the share of lottery revenue going back to prizes and the percentage sent to public education is widening, according to audited financial reports the lottery publishes on its website.

In 2011 and 2012, the two years since the changes were approved, the lottery returned 55% and 59% of its revenue back to the prize pool. In that same period, 32% and 30% of lottery revenue was given to schools.

When California voted to establish a lottery in 1984, it was done in the name of helping schools. When the lottery had its third straight year of declining revenue in 2009, Assembly Bill 142 was passed as an urgency measure because the lottery's education funding was slipping.

"The entire reason we exist is to supplement public education funding," California Lottery spokesman Russ Lopez said. The bill "was critical for the growth of the lottery."

Although the prize money has moved in line with the influx of new revenue, the education money has not and is not required to.

The new allocations do not explicitly state a percentage that must be given to schools, only that it must be higher than the amount given in 2009 and rise slightly every year. If neither condition is met, the allocation structure reverts to the pre-2010 percentages.

With the changes, which now mandate that at least 50% be returned to the prize pool, the lottery has seen an influx of cash. Its revenue grew 42% to top $4 billion in the two years-plus since the bill was passed.

Players have seen their potential winnings jump 59%, and retailers that provide lottery games have seen 38% more money. At the same time, education funding is up 21%.

In addition to the SuperLotto Plus game and Mega Millions, California became the latest state to join Powerball, just in time for a record prize that nearly touched 10 digits in May.

"Once we changed those [allocations], the frenzy begins," Lopez said.

The bill was passed with overwhelming support from the Legislature. It was backed by former Supt. of Public Instruction Jack O'Connell, retailers and a company that provides lottery gaming technology.

O'Connell said that although he played no part in the drafting of the bill, he was happy to hear that the changes would result in more money for education. The changes were proposed during a time of declining state funding for schools and every bit mattered, no matter how small.

"We were trying to be creative as possible to generate additional revenue," O'Connell said.

The lottery is a small part of education funding, akin to what a bake sale provides for an elementary school. About 1% of education funding comes from the lottery, supplementing contributions from the state's general fund and other sources.

K-12 schools get about 80% of the share, money that doesn't often go to helping students. According to a report from the California Department of Education, most lottery funds given to K-12 schools are used to pay salaries and benefits.

Schools also hit the jackpot when winners don't come forward. The lottery forwards to education the cash value of any prize that goes unclaimed for 180 days. Last year, an extra $20 million from winners who didn't cash in went to schools.

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Right. This is a proven formula: introduce games with higher payouts, results in increased revenue for public funding. Duh!?

Make games with higher percentage of sales going to prizes, and lower percentage of sales going to public funding. But public funding can actually be increased due to higher overall revenue of boosted sales from better prize payouts to players.

Still, CA has a long way to go. Among the big top 10 states for lottery sales, where does CA rank in sales per capita? Dead last. MA is the shining example of highest prize payouts leading to highest sales per capita in the nation.

I want someone to investigate why california constantly wins the big national lotteries. I don't believe for a split second that its because more people are playing there either. I have seen state lotteries with people winning in no name small towns.

I want someone to investigate why california constantly wins the big national lotteries. I don't believe for a split second that its because more people are playing there either. I have seen state lotteries with people winning in no name small towns.

How about New Jersey? If you look at the top 25 largest jackpots (by annuity value) in the United States, New Jersey produced 6 winners while California produced 3 including the latest from San Jose. Keep in mind, New Jersey has about 1/4 the population of California.

New Jersey has been in Mega Millions for 6 years longer than California. A little over 3 years longer for Powerball, too. And although their population is much smaller, their lottery participation rate is higher. Their draw sales for big games range from about only 2 ½ times less to nearly half of California's sales.

I did not realize California's payout rate was originally so small. My state has awful games yet pays out about 60% or so.

If the chances of winning the jackpot are so slim, why play when the jackpot is so small? Your chances never change, but the payoff does. If a crystal ball showed you the future of the rest of your life, and in that future you will never win a jackpot, would you still play?

How about New Jersey? If you look at the top 25 largest jackpots (by annuity value) in the United States, New Jersey produced 6 winners while California produced 3 including the latest from San Jose. Keep in mind, New Jersey has about 1/4 the population of California.

Right. This is a proven formula: introduce games with higher payouts, results in increased revenue for public funding. Duh!?

Make games with higher percentage of sales going to prizes, and lower percentage of sales going to public funding. But public funding can actually be increased due to higher overall revenue of boosted sales from better prize payouts to players.

Still, CA has a long way to go. Among the big top 10 states for lottery sales, where does CA rank in sales per capita? Dead last. MA is the shining example of highest prize payouts leading to highest sales per capita in the nation.

Hi Jon D,

You mentioned MA as an example of highest prize payouts but if that really is the case I've never benefited from it. When I had played scratch tickets I rarely won anything and when I did win something it was just the same amount as what I payed for that scratcher.

You mentioned MA as an example of highest prize payouts but if that really is the case I've never benefited from it. When I had played scratch tickets I rarely won anything and when I did win something it was just the same amount as what I payed for that scratcher.

And I'm sure you're not alone. It takes lots and lots of people losing to make it possible for a few to win big.

Even though MA has the highest payouts, its still horrible for most people compared to other forms of gambling like casino and poker.

I actually don't think the lottery should be trying to keep increasing lottery revenues and expanding player base year after year. The lottery should be limited. It is not really gambling, it is fundraising with a gambling twist and a heavy built-in tax burden.

The government shouldn't be in the gambling business, especially as it outlaws other private gambling business that would compete with its horrible payouts.

How about New Jersey? If you look at the top 25 largest jackpots (by annuity value) in the United States, New Jersey produced 6 winners while California produced 3 including the latest from San Jose. Keep in mind, New Jersey has about 1/4 the population of California.

Way back up in them dadgum hills, son!United StatesMember #73904April 28, 200914903 PostsOffline

Posted: January 7, 2014, 11:47 pm - IP Logged

They better keep a low profile on all of those winnings or Governor Moonbeam will want to confiscate part of 'em to cover all of those massive pensions the California politicians wrote into law for themselves.